Argentina: A Glimpse Into Our Future?

Scott noted earlier today that the currency war is underway, with countries around the world debasing their money to disguise the fact that they can’t control their spending. While the phenomenon is becoming worldwide, some countries are ahead of others. Like Argentina.

Up until now, Argentina’s descent into a hyperinflationary basket case, with a crashing currency and loss of outside funding was relatively moderate and controlled. All this is about to change. Today, in a futile attempt to halt inflation, the government of Cristina Kirchner announced a two-month price freeze on supermarket products. The price freeze applies to every product in all of the nation’s largest supermarkets…. As AP reports, “The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.”

Perhaps they will. What consumers will certainly do is scramble into local stores to take advantage of artificially-controlled prices knowing very well they have two short months to stock up on perishable goods at today’s prices, before the country’s inflation comes soaring back, only this time many of the local stores will not be around as their profit margins implode and as owners, especially of foreign-based chains, make the prudent decision to get out of Dodge while the getting’s good and before the next steps, including such measures as nationalization, in the escalation into a full out hyperinflationary collapse, are taken by Argentina’s female ruler.

Presumably all of our readers know how stupid price controls are. Inflation is out of control in Argentina, and the government has responded by threatening to jail economists who dissent from the government’s fictitious numbers. That’s one measure the Obama administration apparently hasn’t thought of yet.

In other news Argentina, just like the rest of the “developed” world, appears to have a slight inflation tracking problem:

Polls show Argentines worry most about inflation, which private economists estimate could reach 30 percent this year. The government says it’s trying to hold the next union wage hikes to 20 percent, a figure that suggests how little anyone believes the official index that pegs annual inflation at just 10 percent.

It couldn’t happen here, right? Don’t be too sure about that:

The BLS has the solution: just exclude any product whose price is rising from your CPI calculation, and voila. For everything else there is a hedonic adjustment.

The ironic comparison to the US does not end there however:

A more effective way to contain inflation would be to “reduce government spending, which is financing an expansion of the money supply, and to have a credible price index.”

Wait, are they still talking about Argentina or the US?

The government announced the price freeze on the first business day after the International Monetary Fund formally censured Argentina for putting out inaccurate economic data. The IMF has given Argentina until September to bring its inflation and economic growth statistics up to international standards. If Argentina doesn’t comply, it could face expulsion from the world body in November.

…
So to summarize: first capital controls, then a currency crisis, then expectations of sovereign default, then a rise in military tensions, and finally – price controls, after which all out chaos usually follows.

Study this sequence well: it is coming to every “developed” country near you in the months and years ahead.

But we shouldn’t be too pessimistic; there is always an upside, right? Like the fact that the stock market is rising. That’s happening in Argentina. Unless, of course, you take into account the declining value of that country’s currency:

But, as with every other hyperinflationary implosion, there is a silver lining: the stock market is soaring…

… at least in Peso terms. When priced in USD, the 360% stock market “rise” is more like -9% in the past 21 years. But luckily, the general public has a gene that prevents it from grasping the difference between nominal and real – something Ben Bernanke is very well aware of.

Some people are excited about the fact that the Dow Jones average is flirting with 14,000. I’m not: it was around 12,000, in nominal terms, thirteen years ago, and was higher than it is today–again, in nominal terms–in October 2007, five and one half years ago. The market is finally getting back to where it was before the crashes of 2002 and 2008-09, just in time for another crash. Just keep telling yourself, it could be worse: we could be Argentina.